Thinking of BRRRring in a not ideal neighborhood.
Member since 2023 · 24 posts · 7 votes
Thinking of BRRRring in a not ideal neighborhood.
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Member since 2019 · 74 posts · 54 votes
3yQuote from:
Quote from @Zane Cress:
If you plan on putting everything you have into this deal with rising rates and uncertainty of a time line on the actual upgrade of the neighborhood then I would say it's risky. If you can do the work yourself and get the property dirt cheap then maybe it's worth it, but you need a lot of wiggle room on the numbers to make it a safe first deal. But if you see the upgrade coming it could be a major win in a few years. What is your personal risk tolerance? What is the maximum mortgage that rents could support after you cash out? No point in creating a 200k property if the rents can only support a 120k mortgage.
Property is 3 unit 8 bed 3.5 baths. It is listed for 285k. If I place an offer I wouldn't pay more than 250k preferably 225k or less. Full gut I am thinking 100-150k max. ARP 500k.
Unit 1- 3 bed 1.5 bath fully renovated min. rent $1700
Unit 2 - 3 bed 1 bath fully renovated min rent $1600
unit 3 - 2 bed 1 bath fully renovated min rent $1400
Definitely risky. I might just wait. Ive been just getting antsy.
@Justin Chan - is this in the suburbs of Boston? Fall River/New Bedford or Lowell/Lawrence?
$285k sounds very cheap - that said I don't know the condition. $150K is not a "full gut" of a 3 family. Full gut of a decent sized triple starts around $300K but I would say closer to $450K for good quality reno... now $100K can completely 'resurface a property' - new kitchens, baths, sandfloors, paint etc... but you're not touching electric, plumbing, or moving walls, replacing windows, structural, etc... big advice is walk the property with a trusted contractor.
The numbers work if reno is under $150K.
No harm in waiting and saving up a little more either.
@Lien Vuong , @Colin Kelly-Rand- what are you advising your clients? And how do the numbers look to you?
20 Replies
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
If the neighborhood you’re describing, is anything like where I invest (C/D class) the property is going to be a headache for a long time. Is it worth the potential?
- Member since 2023 · 24 posts · 7 votes3yYeah definitely a c/d class as of now. But wondering if it’s slowly getting gentrified with all the new condos and Lofts being built.
Quote from @Eliott Elias:
If the neighborhood you’re describing, is anything like where I invest (C/D class) the property is going to be a headache for a long time. Is it worth the potential?
It's a niche market. There's money in it, but it takes a lot of time and effort to learn the niche. And definitely, the further the neighborhood shades to D-class (and the real dividing line between C and D is crime and police response time), the less chance you have of making it work effectively.
- Member since 2019 · 74 posts · 54 votes3y
@Justin Chan - I actually did very well investing in areas that are on the edge of much more expensive areas. Eventually the neighborhood changed and prices increased dramatically - not saying it happens in all areas - I would say just make sure that the yield makes it worthwhile. If not than don't rush wait to see it out and perhaps prices adjust.
I would say differentiate between where you personally want to live and where is a good investment as they are not one and the same.
- Realtor · Athens, GA · Member since 2023 · 201 posts · 104 votes3y
If you plan on putting everything you have into this deal with rising rates and uncertainty of a time line on the actual upgrade of the neighborhood then I would say it's risky. If you can do the work yourself and get the property dirt cheap then maybe it's worth it, but you need a lot of wiggle room on the numbers to make it a safe first deal. But if you see the upgrade coming it could be a major win in a few years. What is your personal risk tolerance? What is the maximum mortgage that rents could support after you cash out? No point in creating a 200k property if the rents can only support a 120k mortgage.
- Member since 2023 · 24 posts · 7 votes3y
Quote from @Jim K.:
It's a niche market. There's money in it, but it takes a lot of time and effort to learn the niche. And definitely, the further the neighborhood shades to D-class (and the real dividing line between C and D is crime and police response time), the less chance you have of making it work effectively.
Thank you for your advice!
- Member since 2023 · 24 posts · 7 votes3y
Quote from @Sean Kelly-Rand:
@Justin Chan - I actually did very well investing in areas that are on the edge of much more expensive areas. Eventually the neighborhood changed and prices increased dramatically - not saying it happens in all areas - I would say just make sure that the yield makes it worthwhile. If not than don't rush wait to see it out and perhaps prices adjust.
I would say differentiate between where you personally want to live and where is a good investment as they are not one and the same.
Thank you for the advice!
- Member since 2023 · 24 posts · 7 votes3y
Quote from @Zane Cress:
If you plan on putting everything you have into this deal with rising rates and uncertainty of a time line on the actual upgrade of the neighborhood then I would say it's risky. If you can do the work yourself and get the property dirt cheap then maybe it's worth it, but you need a lot of wiggle room on the numbers to make it a safe first deal. But if you see the upgrade coming it could be a major win in a few years. What is your personal risk tolerance? What is the maximum mortgage that rents could support after you cash out? No point in creating a 200k property if the rents can only support a 120k mortgage.
Property is 3 unit 8 bed 3.5 baths. It is listed for 285k. If I place an offer I wouldn't pay more than 250k preferably 225k or less. Full gut I am thinking 100-150k max. ARP 500k.
Unit 1- 3 bed 1.5 bath fully renovated min. rent $1700
Unit 2 - 3 bed 1 bath fully renovated min rent $1600
unit 3 - 2 bed 1 bath fully renovated min rent $1400
Definitely risky. I might just wait. Ive been just getting antsy.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Justin Chan:
Hello all!
Kind of new to bigger pockets but love all tools and information! Thinking BRRRRing a 3 family unit in a not ideal neighborhood. I actually grew up in the neighborhood and the school systems are not the best. But I see a lot of change happening! A new train station just opened that is approximately a 9 min walk that goes to Boston, MA. A lot of lofts were just built close by and they are building more! Are rentals walking distance to train stations more valuable? Thank you in advance for the feedback!
The risk on BRRR of not ideal neighborhood :
- there's cap in the market buyer's pool, so dont go too much into renov.
- risk of squatter /property crime is higher,make sure you contractor is willing to work in your area. - Member since 2019 · 74 posts · 54 votes3y
Quote from:
Quote from @Zane Cress:
If you plan on putting everything you have into this deal with rising rates and uncertainty of a time line on the actual upgrade of the neighborhood then I would say it's risky. If you can do the work yourself and get the property dirt cheap then maybe it's worth it, but you need a lot of wiggle room on the numbers to make it a safe first deal. But if you see the upgrade coming it could be a major win in a few years. What is your personal risk tolerance? What is the maximum mortgage that rents could support after you cash out? No point in creating a 200k property if the rents can only support a 120k mortgage.
Property is 3 unit 8 bed 3.5 baths. It is listed for 285k. If I place an offer I wouldn't pay more than 250k preferably 225k or less. Full gut I am thinking 100-150k max. ARP 500k.
Unit 1- 3 bed 1.5 bath fully renovated min. rent $1700
Unit 2 - 3 bed 1 bath fully renovated min rent $1600
unit 3 - 2 bed 1 bath fully renovated min rent $1400
Definitely risky. I might just wait. Ive been just getting antsy.
@Justin Chan - is this in the suburbs of Boston? Fall River/New Bedford or Lowell/Lawrence?
$285k sounds very cheap - that said I don't know the condition. $150K is not a "full gut" of a 3 family. Full gut of a decent sized triple starts around $300K but I would say closer to $450K for good quality reno... now $100K can completely 'resurface a property' - new kitchens, baths, sandfloors, paint etc... but you're not touching electric, plumbing, or moving walls, replacing windows, structural, etc... big advice is walk the property with a trusted contractor.
The numbers work if reno is under $150K.
No harm in waiting and saving up a little more either.
@Lien Vuong , @Colin Kelly-Rand- what are you advising your clients? And how do the numbers look to you?
- Member since 2022 · 58 posts · 62 votes3y
Not so much advising clients as using realistic numbers and expectations.
Use market rents for your market. Don't just choose the highest rent comps...choose the most accurate comps.
Ask around for actual renovation costs from repeat builders. To repeat Sean, if I could gut for $150k I would buy everything... a true gut costs much more. I am around $125k-$150k psf on two recent renos (not 100% gut but almost - BEFORE and after at AFTER at 97 Moreland). For a 3000 SF property expect to spend around $400k on a real gut.
For a clean up (painting, new kitchen cabinets / counters, retiling bathroom and finishing floors, new appliances) you can do perhaps for $35k a unit. However, depending on the property condition you might need to consider a lot more than that as the property has so much deferred maintenance that your operating costs will kill your profit. Properties in ****** condition cost a lot to operate (unless your are very handy or have a handyman who is a jack of all trades.)
Look at real operating costs besides just your mortgage. I pity anyone who only considers PITI.
There are some taxable benefits that you can't find with stocks or bonds - so you can take that in consideration when you are comparing income streams.
Real Estate is both and asset and a liability...
- Investor · Wheat Ridge, CO · Member since 2013 · 75 posts · 41 votes3y
You could pick up comps in better neighborhoods which could raise your cash out refinance opportunity. Don't count on this, but it could happen if you do the proper due diligence. The downside could be lower than market rents, extra maintenance costs, and increased vacancy.
- Lender · San Diego, CA · Member since 2022 · 587 posts · 298 votes3y
Quote from @Neil Cronkrite:
You could pick up comps in better neighborhoods which could raise your cash out refinance opportunity. Don't count on this, but it could happen if you do the proper due diligence. The downside could be lower than market rents, extra maintenance costs, and increased vacancy.
I agree with @Neil Cronkrite. I also feel that the neighborhood is very important as well as the school system. However, in a few years the neighborhood could drastically change as well as the surrounding areas. This property would take a lot of your time and effort but in a few years it could be worth it!
- Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes3y
There are two major problems with buy and hold in "not ideal neighborhoods." The first is because the value is low, it's very easy to rehab out your equity. I wouldn't buy one that needed a lot of work. The second is that often the operating expenses are above the income and so they just become a money pit. Properties in these areas can work, but it's not where I would start. You need to be very careful in such areas.
- Real Estate Agent · Columbus, OH · Member since 2023 · 8 posts · 11 votes3y
Yes, rental properties that are within walking distance to train stations can be more valuable than similar properties that are not. This is because easy access to public transportation is a desirable feature for many renters, particularly those who commute to work or school.
In your case, the new train station and the development of lofts in the area suggest that there is likely to be growing demand for rental properties in the neighborhood. However, it's important to remember that the overall quality of the neighborhood and the school system can also impact the value and appeal of your property to potential renters.
As with any investment, it's important to conduct thorough research and analysis before making a decision. Consider factors such as rental rates in the area, vacancy rates, and any potential costs for renovations or repairs. Additionally, consult with a real estate professional or financial advisor who can provide more personalized advice based on your individual circumstances and goals.
- Real Estate Agent · MO · Member since 2022 · 33 posts · 10 votes3y
Quote from @Eliott Elias:
If the neighborhood you’re describing, is anything like where I invest (C/D class) the property is going to be a headache for a long time. Is it worth the potential?
How come you deal with c/d class properties? are they worth the potential?
- 3yLien VuongBusiness MemberReal Estate Agent · Boston, MA · Member since 2018 · 2k+ posts · 1k+ votes
Housing, especially rental housing, that are within a small walking proximity to the train is always a huge plus. It is appealing to your tenants for the commute to work and would be very positive to gain equity in the future also. I would focus on that. As long as you understand the neighborhood and what you're getting into, I dont see BRRRRR in a less appealing neighborhood as a terrible thing for long term hold.
The Elle Group5153 Reviews - Rental Property Investor · NY · Member since 2018 · 126 posts · 42 votes3y
They can be. But who are your target tenants? Are they communicating somewhere?
- 3yAlex BekezaBusiness MemberLender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
Learning how to utilize housing assistance authorities like Section 8 has allowed me to thrive in what might be considered "tough" parts of town .@Justin Chan
Investor Property Loan5306 Reviews - Realtor · Killingly, CT · Member since 2016 · 21 posts · 9 votes3y
If you're struggling to find cash flowing properties, you might consider looking outside RI a bit. I'm in Eastern CT and prices/taxes are much more affordable and rents are still great with plenty of demand. It's a quiet area making management pretty relaxed. Let me know if you want me to send you some properties with cashflow potential out this way.
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